Lotte head’s fate casts a shadow over company

With Lotte Group Chairman Shin Dong-bin now behind bars on bribery charges, his estranged older brother, Shin Dong-joo, officially requested on Wednesday that the chairman resign as CEO of Japan’s Lotte Holdings, a major stakeholder of the conglomerate’s Korean businesses.

This gave rise to rumors across local and Japanese media outlets that Shin Dong-bin’s detention may reignite an ownership battle that until now seemed to be closing in favor of the younger Shin.

In a statement, Shin Dong-joo called the detention a “highly concerning situation,” adding that “Shin Dong-bin’s immediate stepping-off is unquestionably central to Lotte Group’s fundamental reform and revival.”

Japan’s Lotte Holdings has a 99 percent stake in Hotel Lotte, which owns multiple shares across the group’s Korean affiliates. Shin Dong-joo holds the position of vice chairman at Koiyunsya, Lotte Holdings’ top shareholder. Shin Dong-bin’s share in Lotte Holdings is smaller, at 1.4 percent, but he was nonetheless voted to remain as co-CEO alongside the president, Takayuki Tsukuda, by shareholders in 2016.

The older Shin has made similar requests in the past, even after his brother practically took over the family business. But Shin Dong-bin’s detention poses an actual threat because in Japan, where business leaders face a stricter corporate culture, executives frequently resign as a show of responsibility upon receiving legal penalties.

A source at Lotte Group, the group’s Korean side, said the older Shin is just one of many shareholders and that whether Shin Dong-bin actually leaves his post at Lotte Holdings should be decided in a board of directors meeting.

Another factor that poses a threat to Shin’s grasp over Lotte is that his jail time may postpone the IPO of Hotel Lotte, a crucial remaining task for the group’s full transition to a holdings company in Korea.

Under a 2015 reform plan, Lotte has been simplifying its corporate structure. It cut down the number of cross-shareholding chains across affiliates from 50 to 13 and made a huge step last year by taking its de facto holdings company, Lotte Corporation, public on the Kospi market in October. The more linear structure boosted Shin’s direct ownership across Korean affiliates.

The cherry on top was to be Hotel Lotte’s IPO, which the group anticipated would bring the ratio of Lotte Japan’s stake from the current 99 to under 50 percent. The IPO was underway in 2016, but was halted when prosecutors embarked on an investigation into Shin Dong-bin for bribery. Now that he is behind bars, the plan’s future has become murky.

Business-wise, Shin’s detention is expected to halt a handful of major projects the group was planning this year, mainly an increase in the company’s foreign investments and partnership relations abroad. But finding new partners or investors will now be more difficult due to the chairman’s stained image. Lotte Group announced Wednesday it will implement an “emergency management system” in which Chairman Hwang Gak-gyu, currently the head of Lotte’s strategy planning division, will lead the group while Shin is away.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]